This Brave New World: India, China, and the United States

ISBN-13: 9781501121982

Media Type: Paperback

Publisher: Simon & Schuster

Publication Date: 03-21-2017

Pages: 384

Product Dimensions: 5.40(w) x 8.20(h) x 1.10(d)

Anja Manuel is cofounder and partner with former Secretary of State Condoleezza Rice, National Security Advisor Stephen Hadley, and Secretary of Defense Robert Gates, in RiceHadleyGates LLC, a strategic consulting firm. She served as an official at the US Department of State from 2005-2007, responsible for South Asia policy. She has traveled extensively across China and India, and with her business clients, regularly experiences tough government negotiators and managing unruly subsidiaries in cities from Beijing to Bangalore. A graduate of Harvard Law School and Stanford University, Manuel now lectures at Stanford. When she is not on a plane, she lives in San Francisco with her husband and two young children.

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FROM THE INTRODUCTION
 
China Flexes Its Military Muscle—Bloomberg
China Fears Sink Markets Again—Wall Street Journal
It’s Time to Get Tough on China—Washington Post
China, a Wounded Tiger, Could Lash Out—Los Angeles Times
 
The headlines leading up to Chinese President Xi Jinping’s visit to the United States in September 2015 were scathing. Washington threatened to impose sanctions for Chinese computer hacking. Some presidential candidates called for President Obama to cancel the state visit. I was among the hundreds who stood politely to applaud Xi’s speech to the American business community in Seattle during that visit. It was an impressive affair. Entrepreneurs sipped wine and made polite conversation with Chinese officials. Xi is a statesman and looked it, in a crisp dark suit and tie. He struck all the right notes: assuring us that China will create a level playing field for U.S. companies, crack down on commercial cyber-theft, and cooperate with us on issues ranging from Iran to global financial stability. He encouraged the United States and China to “work together” on our future. Yet underneath the ceremony, there was an air of formality, and even discomfort. We had waited in line for more than an hour to go through a security screening. Most of the Chinese and Americans sat at separate tables, scarcely interacting with each other. Some American CEOs fretted about the negative news coverage they would receive for being seen hobnobbing with the Chinese president.

The atmosphere at a Silicon Valley dinner for Indian Prime Minister Narendra Modi a few days later was entirely different. The prime minister was an hour late. Indians, Americans, and Indian-Americans mingled happily in the banquet room and, in many cases, no one quite knew who belonged to which country. There was such loud, happy chatter that the organizers repeatedly had to ask us to sit down. Most of the Americans onstage, including the CEOs of Google, Microsoft, and Adobe Systems, were born in India. Prime Minister Modi, in a beige traditional Indian Nehru jacket, gave a less formal speech than Xi. He spoke in English, told jokes, shared stories of technology connecting Indian grandmothers to their grandchildren working in San Francisco, sketched his vision for a digitally empowered India, and called the India-U.S. relationship the “defining partnership of this century.” In contrast to that of President Xi, Modi’s visit received very little news coverage.

The dinners are a snapshot of the state of our relations with Asia’s rising giants. We respect China, our commercial ties bind us, but difficult geopolitics and a slew of bilateral disagreements lurk beneath the surface. As we listen politely to Xi Jinping, we don’t always trust his words. We are “working hard” to get along with the Chinese, but it is not easy. Some would describe us as “frenemies.” Relations with India are much more affable and comfortable. It is far behind China by most economic and development metrics, but has long-term strengths such as real rule of law and democracy. India doesn’t get much attention in our press. We assume that we share values and already have a strong “partnership” in most areas. Yet we tend to underestimate India’s size and future power.

*                *                *

The axial shift of power from the United States and Europe to China and India is unrelenting. By 2030, just fourteen short years from now, Asia will surpass the combined power of North America and Europe in economic might, population size, and military spending. The United States will still be the most powerful international player, but China and India will increasingly dictate the terms of global governance. Along with the United States and Europe, they will become the new indispensable powers—whether they rise peacefully or not.

The lion’s share of public attention is focused on China. We are obsessed with the Asian goliath and fear that it will replace America’s preeminent power. This insecurity misses the larger picture. Due to their size and economic might, both India and China will have veto power over most international decisions, from climate change, to the openness of global trade, to nuclear policy, to human rights and business norms. India will be the most important country outside the West to shape the rise of China. We must stop our hand-wringing about China and seek instead to forge harmonious relationships with both giants, and thus bravely create the new world.

More attention has been paid to China’s ascent because its boom started earlier and many predict it will be the world’s largest economy by 2030 (if measured by purchasing power, it already is). Our news coverage of China is filled with breathless statistics: it already has more megacities than anywhere else on earth; it has promised pensions to more retirees than the total U.S. population; its cars and smokestacks gush almost twice as much CO2 into the atmosphere as the United States; it has more Internet users than the United States and Europe combined, and 2 million censors monitoring them. The list goes on. Sometimes we describe China as an unstoppable juggernaut, ready to dominate the world. A few days later the papers are filled with stories of its impending economic doom and potential political collapse. The truth, of course, lies somewhere in between. China’s economy, might, and influence are trending up, but they will not follow a straight-line trajectory.

Many still doubt the relevance of India as a global power. They should not. India will likely be the world’s most populous country before 2030, with at least 100 million more citizens than China. India will be adding more people than China to the world’s middle class, so our companies will strive to please both Indian and Chinese consumers. By 2030, India will lead the world in energy demand. It will be the world’s second-largest emitter of carbon, third-largest source of investment in the world, and third-largest economy after China and the United States. It is true that in many areas, especially economic development, India will lag behind the United States and China. Some question whether India’s economy will grow enough for it to become a great power, and discount its international role. This misses the point. India is so large that it will impact us whether or not it lifts millions more out of poverty. If it does not grow, international concerns like climate change will only become worse. We need India’s help to solve global problems and to shape China’s rise, so we want it to succeed.

The interaction between these two Asian giants will impact the United States. Disputes between China and India could force us to take sides, possibly even militarily, since our interests will more likely align with India’s. China and India increasingly compete for oil, coal, and other natural resources around the world, and their decades-old dispute over where their Himalayan border lies could turn ugly. India’s nuclear program is primarily a hedge against China’s larger military. As China extends its sphere of influence south and India east, the two are more likely to come into conflict, and may draw us into their disagreements.

Conversely, the two countries sometimes cooperate in ways we do not like—by setting up a New Development Bank with Brazil, Russia, and South Africa to compete with the World Bank, by refusing to join American-led free trade negotiations, or by India joining China’s new Asian Infrastructure Investment Bank. For years China and India argued in concert that they had less responsibility than the West to lower carbon emissions because their economies were less developed, and thus demonstrated that they have absolute veto power on this critical issue. Fortunately, both have recently begun to cooperate with the West. As Chinese and Indian companies become some of the world’s largest investors, they will influence global business practices from bribery to environmental stewardship and labor standards.

I have been lucky to have a front-row view of this colossal shift in power, and a small role in shaping it. At the U.S. State Department from 2005 to 2007, I was part of our internal deliberations to create a new strategic partnership with India, and I watched as we struggled to encourage China to become a “responsible stakeholder” in the world system. In the faded splendor of India’s foreign ministry, I helped negotiate a civil nuclear accord with Indian officials, which fostered mutual trust that unlocked cooperation in other areas. In a glorious gilded French palace I observed the “new China”—in the form of then foreign minister Li Zhaoxing—flexing its diplomatic muscle by refusing to agree to additional sanctions on Iran. For the past six years, the consultancy I cofounded and manage with former cabinet-level government officials has helped American companies expand into emerging markets. While we focus on the whole world, the two countries that matter most to our clients are China and India. With my clients, on a daily basis I live through the trials of selling to tough Indian and Chinese negotiators or managing unruly subsidiaries in cities from Beijing to Bangalore.

*                *                *

To sharpen our perspective on what’s at stake for the United States as this power shift progresses, and how critical India will be in shaping China’s rise, one can paint two dramatically different portraits of the world in 2030.

First, picture the worst case, a world divided by a twenty-first-century cold war:

China’s insatiable demand for resources has caused it to ally with resource-rich countries throughout the world, corrupting their governments, propping up dictators, and exploiting the local population. China’s economic power and lavish infrastructure spending has made its Asian neighbors heavily dependent on Chinese trade and investment and effectively “purchased” their acquiescence to China’s regional hegemony. Russia has become a junior partner in a China/Russia axis that confronts American policy at every turn. In part to divert attention from their slowing economies, together they work to undermine “western” principles and to dismantle the post–World War II international order established and maintained by the United States. The Mainland has coerced Taiwan into accepting its domination and future control. The South China Sea and its oil are now Chinese territory. China launches constant, low-level cyberattacks against the United States. India and China have had several military skirmishes in the Himalayas and over control of Tibetan rivers, which China wants to divert to water its increasingly parched northern territory.

In this scenario, India’s fear of China has brought it into a close military alignment with the United States, Japan, and Australia, and into closer cooperation with Europe. As these opposing coalitions form, an arms race increases military spending. That escalation diverts much-needed funds from social services, improvements in education, and vital infrastructure projects in the United States, China, and India. While China still trades with the West, it does not open its economy further and it increasingly uses its market clout to favor allies and punish adversaries, all weakening western influence. India, despite its alignment with the West, resists open trade. These new divisions bring the influence of institutions such as World Bank and the United Nations to an all-time low.

To prevent unrest over stagnating wages, the Chinese government becomes more authoritarian and represses dissent. India fails to reform its political system, is still plagued by a byzantine bureaucracy and corruption, and economic growth stalls. Its education system remains third-rate, and millions who might have risen out of poverty are still mired in it. India’s and China’s immense carbon emissions have led to irreversible climate change.*

• One can imagine several variants of this worst-case scenario: An actual short, hot war between the United States and China could ensue if China forcibly seeks to take the Diaoyu islands from Japan, a U.S. treaty ally. Or suppose that Chinese growth stalls, and President Xi Jinping is overthrown in an internal coup, led by Communist Party leaders unhappy with the vast scale of his anticorruption crackdown. This leads to chaos in China, stagnation in the Chinese economy, and, because many countries like Australia, Korea, the United States, and India are dependent on exports to China, a world economic recession.

Alternatively, imagine an optimistic, best-case scenario:

Goods, services, and people flow fairly openly between China, India, the United States, and Europe, making all of these regions more prosperous. India and China agree to share water resources from Tibet and settle their Himalayan border dispute. China accepts the status quo with Taiwan, leaving its ultimate status for future generations. While India, China, and the United States maintain some of the largest militaries in the world, increased cooperation among them, including sharing responsibility for securing the key sea-lanes in the South China Sea and Indian Ocean, allows them to restrain military spending.

As a result, each can devote more funds to shoring up pension systems and improving health care, especially pressing needs in rapidly aging China and in the United States. India invests to improve its education system, vital to equipping its fast-growing young population with job skills. Many millions are lifted out of poverty in both India and China. This new cooperation creates space to reform the UN, World Bank, and World Trade Organization (WTO) to make each more inclusive and effective.

The Chinese government introduces some public accountability and creates institutions that uphold the rule of law. Chinese citizens win cases against the government to fight land grabs, for example, and feel generally more empowered. In India, sweeping reforms clean up graft and make government processes more efficient, leading to strong growth. The United States, India, and China—the world’s largest “carbon sinners”— sign substantive agreements to combat global warming and together keep greenhouse gas levels below the tipping point.
 
FROM CHAPTER TWO:
THE NATIONS THEY BUI LT
 
When current Chinese President Xi Jinping was fourteen years old, Red Guards accosted his father. They dragged the old man before a crowd and forced him to declare that he was a horrible person. Then they threw him into prison. The crime: Xi’s father, one of the original communist leaders who had followed Mao since the Long March, was now suddenly considered not revolutionary enough.

It was a stunning reversal. Just a few years earlier, the elder Xi had been vice premier and a confidant of Mao. Xi Jinping attended a prestigious school for the children of the elite. Suddenly he was without parents and sent to a village in the countryside to work as a farmer and build dams and roads. As Xi himself explains, he slept on “earth beds,” and had no meat in his diet for months at a time. Many teens in this situation would conclude that communism was a dangerous system. Xi begged to join theCommunist Youth League and became a lifelong party stalwart.

A few years later, across the Himalayas, India’s current prime minister, Narendra Modi, went into hiding to avoid arrest. In 1975 he was a young organizer for the Hindu nationalist organization RSS when the country’s Prime Minister, Indira Gandhi,* suspended India’s constitution. She jailed many of her political opponents, including many of Modi’s associates.

• Despite the name, Indira Gandhi was Jawaharal Nehru’s daughter, and not related in any way to the Mahatma Gandhi. By chance, she married a man also named Gandhi.

Disguised as a Sikh with turban, full beard, and sunglasses, Modi continued to distribute banned opposition pamphlets and organize protests. After India’s democracy was restored, he ran for political office in his native state, and was ultimately elected prime minister.

In the face of political persecution, these two young leaders responded to these traumatic events very differently. The chaos of China’s Cultural Revolution taught Xi and many of his peers to value the stability of the system and economic prosperity above all else, even if it meant sacrificing individual freedoms. Although India’s democracy was only two decades old when Indira Gandhi suspended most democratic institutions, it was strong enough to survive. The press defied censorship, police and judiciary refused the government’s orders, and opposition parties, including Modi’s BJP, banded together to reject authoritarian rule. These divergent reactions explain much about the underlying values in each society that maintain China’s and India’s political systems today.

*                *                *

FROM CHAPTER FOUR:
SHARING THE WEALTH
 
 
The first thing that struck me was that the streets were spotless, polished clean with the swing of hundreds of broom strokes a day.Women squatted in front of their corrugated iron homes, wearing ragged sweaters and hats to ward off the January Delhi chill. They chatted while they ripped the feathers off scrawny, recently butchered chickens. Preschool-age children played with sticks in the dirt, and one three-year-old girl in a dusty pink hoodie with bunny ears confidently grabbed my hand.

The waste-picker slum community that I visited in east Delhi in January 2015 works off the landfill. Every day parents and children hike a one thousand-foot tall mountain of rubbish and hunt for plastic bottles, metal cans, and other goods, which they then sell to recyclers, earning about eight dollars per family each day. In India the 1.5 million waste pickers reside near the bottom of the social and economic ladder.

Mohammad Asif and his family are among the more affluent in the community. In addition to the one-room hut he shares with his wife and children, he has a small, covered storage area where his extended family works at separating small mountains of plastic water bottles from Tetra Pak juice packs and aluminum cans. The poorer slum residents (who have no storage area) sell their daily finds to Mohammad, who sorts and stores them to sell to larger, more professional recyclers. He pays significant rent for his hut to a slum landlord. His family has enough food to eat, but barely.

Mohammad’s lanky, elegant daughter Farida is in first grade at a government school and also studies at the special learning center for children in the slum that a nonprofit organization that helps waste pickers, called Chintan, has set up. The learning center helps her catch up with the other kids in her formal school, and additionally serves as day care: it keeps her and other children off the toxic waste dump where her parents work, and where she would be exposed to chemicals and disease.

Supriya Bhardwaj, the energetic, young director of Chintan’s children’s programs, walked me around the learning center and the slum community, and explained much about the life of Delhi’s urban poor. We stepped gingerly around several cows feeding on trash and over an open sewer, and then climbed rickety stairs to a collection of four tiny, windowless rooms on the second floor of a listing concrete structure. In each room fifteen or so children sat happily on the floor in front of a teacher, learning basic writing and math, and spontaneously sang a welcome song for me.

Supriya explained that it is an enormous challenge to get the local families to trust Chintan enough to send their kids to the school. “You must understand, each child that is in our learning center is not out on the landfill trash picking, and that takes several hundred rupees a day away from the family income. Our teachers walk through the slum every morning to bring the children here. It is positive peer pressure, and they love to come, and beg their parents to let them go.”

*                *                *

In total, almost 65 million Indians live in urban slums, and 300 million live under the World Bank poverty line, which is a depressingly low $1.25 each day. Almost a third of the rural Indians and a quarter of its city dwellers are this destitute. This seemingly incurable poverty—despite decades of effort—is the most fundamental problem India faces on its way to becoming a true world power. It is the issue that keeps Indian politicians up at night, determines whether they are reelected, and has until recently kept Indian leaders—who were preoccupied with solving these domestic issues—from engaging more deeply in international affairs.

By contrast, China’s economic juggernaut has lifted many millions out of poverty, so fewer Chinese live in extreme deprivation. According to the latest World Bank data, in 2011 approximately 84 million Chinese lived on less than $1.25 per day, many of those in the rural interior of the country.

The massive efforts the Chinese government has made to build housing in the country’s interior means there are far fewer Chinese urban slums like the one I visited in eastern Delhi. However, vast income disparities remain. While the GDP per person in Shanghai and Beijing is close to that of Portugal or the Czech Republic, the per capita GDP of interior provinces like Xinjiang resembles that of Congo. As a result, hundreds of millions of migrant workers left their farms in the interior over the past three decades in search of higher incomes in the giant metropolises near the coast. Until recently the government attempted to ignore this enormous migrant community of nearly 220 million people. Instead it tried to push them back to their villages by refusing to provide them with any services at all in the cities.

Xian and her younger sister Qian are two tiny, energetic women in this mass of migrant humanity.* Xian, the quieter, older sister, dropped out of high school at age sixteen, married a man her parents found for her, and moved with him to Guangzhou, where they worked in separate garment factories—twelve-hour shifts, six days a week. After two years, the garment factory reduced the number of overtime hours Xian was able to work, so they moved to Shenzen, where she and her sister were lucky enough to land a job in one of the enormous, city-like electronics factories that assemble our cell phones and tablets.

• I am indebted to Sungmin Rho (PhD, Stanford), assistant professor at the Graduate Institute of International and Development Studies in Geneva, and one of the world’s foremost experts on Chinese migrant workers, for sharing these stories with me, as well as some records and pictures of her more than three hundred interviews of migrant workers. To protect them I have changed the names of the two sisters and not disclosed the name of their employer, a well-known electronics manufacturer. Chinese migrant workers are very sensitive about speaking to foreigners and several refused to be interviewed by me, worried that the Chinese government would somehow penalize them for talking about their difficult circumstances.

 
Xian and Qian do not live in a slum, but their life is at times more reminiscent of Upton Sinclair’s The Jungle than Mohammad’s life in Delhi. The dorm room, for which they each pay 100 yuan (sixteen dollars) in rent a month, has eight bunk beds covered in polyester blankets. Suitcases under the beds hold the women’s few possessions. It smells of Chinese noodles and inexpensive room freshener. A blanket covers the one filthy window at all times, because fi e of the roommates work at night, and the others during the day, so someone is always sleeping.

Xian last saw her husband three months ago because he lives in a similar men’s dorm attached to a different factory across town. “That’s fine,” she comments; “it’s better than fighting all the time when he is around.” It is harder for Xian to talk about her one-year-old daughter, who lives with her husband’s parents in their home village in Hunan. She sees the little girl only once a year, during the spring festival, and says “she hardly recognizes me.” Xian talks about her family as if she is describing someone else’s life—with no real feeling. She acts a decade older than her twenty-two years and is quite pessimistic about her future. Young factory workers are more often single, but being married, like Xian, is not unheard-of. Migrant workers endure long separations from their partners and children in order to make enough money to send home. The Economist estimates that 61 million Chinese children are left with relatives in villages while their parents work in big-city factories. Factory life is all-consuming, and there is not much room for personal lives.
 
FROM CHAPTER FIVE:
BANISHING BRIBES
 
 
 
One of China’s best boutique hotels has a sleek modern bar and perfect cocktails. Successful Chinese entrepreneurs mingle seamlessly there with foreign investors and well-heeled tourists.It is always crowded, so I was surprised to hear that the western owner— whom we’ll call John—recently sold it. A mutual friend told me “John was happy to get that monkey off his back.”*

He elaborated that as a successful businessman with hotels in many countries, John was careful about new ventures. At first he was enthusiastic about how smoothly the project was going. The municipality seemed eager to help, the land was easy to obtain, and construction was proceeding ahead of schedule. But then the problems started.

• “John” has authorized me to use this story. To protect the individuals described here, I have changed his name and key identifying details of the place and situation.

His story was familiar: to get the sixteen permits required to operate the hotel, John and his partners had dinner after dinner with local officials to establish the right guanxi, or relationships. When John followed up to ask when the permits would be issued, he was not given a date. Instead he was told that he should hire a specific consultant for the fi e permit, another for the building inspection, a third to get the alcohol license, and so on. The “consultants” cost at least four times the price of the permits themselves, and John was not naïve about where the additional money was going.

At first he pushed back. To finish work ethically, he installed the lobby security cameras exactly where and how the anquan ju (the State Security Bureau) had told him to do so. When the inspector came out, he told John “this is all wrong, you need to move the cameras to the other side of the lobby.” Once that was accomplished, the inspector had another complaint. After several more rejections, John caved and called the “consultant” the inspector had recommended. Once John paid the exorbitant fee, the security cameras magically passed inspection.

Trees were similarly problematic. John was told that the lovely trees in the hotel courtyard weren’t getting enough airflow and he would have to modify the building plans substantially, at great cost and delay. The tree bureau suggested he hire a helpful, if expensive, construction company. That company made tiny adjustments to the courtyard facade, and surprise (!), the trees suddenly had enough airflow and the permit was issued.

John persisted for several years, but finally the constant low-level corruption was too much. It wasn’t just the initial “consultants,” he told my friend. After the initial shakedown for the permits, there were opaque, recurring “service fees,” not to mention that some officials expected to come by the hotel once a week for free steak and wine.

Aware that he was jeopardizing his ethics, John finally had enough, and sold the hotel. He believes, and I agree, that the Chinese bureaucrats saw nothing wrong with their behavior. Before the dramatic recent anticorruption crackdown, the long-standing mentality was that this is the way business is done.

Corruption is also endemic throughout Indian business and government, though it has a different